Question

Describe whether the following changes cause the short-run aggregate supply curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) Input prices decrease. (c) Firms and workers expect the price level to fall. (d) The price level decreases. (e) New policies cause an increase in the cost of meeting government regulations. (f) The number of workers in the labor force increases.

Answer 1

Short run aggregate supply curve will indicate the total quantity of goods supplied by an economy in a short run.

a) There's a direct relationship of price and supply of a commodity. In the short run, the aggregate supply curve (which is upward sloping) will slide to the right side since the producers will increase the supply once the prices are high. In order to gain more profits, the supply of the commodities will be increased. The SRASC(Short run aggregate supply curve )will movie to the right.

b)Input price is the price that is spent on factors of production. For example, trailers in a small company. The wages given to them is the input price which later gets added to the cost of production. Now, if the input price falls, it means the cost of production is less too, and the suppliers will be tempted to supply more goods to earn profits. Hence, the short run aggregate supply curve will move to the right.

c) Firms and workers expect price level to fall - If the price of the commodity does literally fall, the supply will fall too. So the short-run aggregate supply cuve will move to the left.

d) As mentioned above, the the supply of a commodity is directly proportional to the price of a commodity. If the price level decreases, the supply will fall. And the Short-run aggregate supply cuve sill move the the left.

e) The short run aggregate supply curve will move to left. If the costs have increased by meeting the govt. regulations, it means the it'll have an affect on the supply (which will fall). Hence, the curve will shift to left.